WEAKNESSES

Dependence of the Finnish banking sector on the Swedish and Danish financial sectors

An ageing population

Risk assessment

The economy is emerging painfully from recession

After three years of recession, the economy struggled hard to recover in 2015. Despite confidence indicators being on the whole healthy, growth even declined in Q3 2015 due, mainly, to a fall in manufacturing output (particularly in the electronics sector). Construction and services grew slightly. With regard to demand, exports and investment again contracted, and only consumption, sustained by lower inflation and a temporary postponement of loan repayments, awarded by certain banks, continued to report positive growth. However, the external accounts have improved, thanks mainly to the lower oil bill. The unemployment rate reached 8.4% over the quarter, up by one point year on year. By contrast, nominal wages increased.

The resumption of growth is likely to be moderate in 2016, driven mainly by investment (investment in paper industry technologies and replacement investments). Increased activity in construction and services is also likely to sustain growth. However, uncertainties continue to put pressure on the vigour of external demand. The recession in Russia and the ban on the import of western food products imposed by Moscow is affecting exports and tourism. Meanwhile, the relatively high unemployment rate, fiscal austerity and the burden of household debt (120% of disposable income) are dampening domestic demand.

Sluggish growth and lower food and oil prices pushed inflation into negative territory in 2015. This is, however, expected to become positive again in 2016, in particular because of the planned increase in wages.

The country is seeking to overcome a serious industrial crisis and has seen its public finances deteriorate

The country is going through a real crisis of change and is having to reinvent its industrial model. This relies on the paper sector and the Nokia company. These sectors have been strongly challenged by the emergence of touch screens and smartphones. Furthermore, the Finnish economy has lost competitiveness due to a decline in productivity and a sharp rise in real unit labour costs. The country has, however, started to adjust. The paper and telecommunications sectors have made substantial staff cuts and are reorganising their production. Nokia, for example, sold its mobile telephone business to Microsoft in 2013 and its shareholders approved the purchase of the French group, Alcatel Lucent, in December 2015, reflecting the Finnish company's ambition of becoming one of the world's top three telecom equipment makers. Meanwhile, a wage restraint policy has been put in place and labour productivity has begun to improve.

At the same time, the authorities have implemented a policy of public spending restraint. However, this has exacerbated the slowdown in activity and the public deficit exceeded the 3% of GDP threshold in 2014. Another round of spending cuts is planned in 2016 aimed at reducing the imbalance in the public accounts. Moreover, in 2014 the authorities presented a pension reform package aimed at reducing the budgetary costs of an ageing population. Government debt, which exceeded the 60% of GDP threshold in 2015, is expected to continue to rise.

A major reform programme but tensions within the governing coalition

Finnish electors conferred power on the Centre Party in the April 2015 parliamentary elections. The coalition government, which also includes the far-right Finns Party and the centre-right National Coalition Party, announced a major programme of reforms, which, in particular, involves restructuring the labour market and welfare system, with a view to reducing unit labour costs, increasing the labour supply and improving competitiveness. On top of this are measures intended to improve productivity in both the private and public sectors. The coalition could, however, prove fragile, as in the case of the compromise struck by the Prime Minister in November 2015, after threatening to dissolve the government, on a reform consisting of transferring responsibility for providing social and healthcare services from the municipalities to the regions.

(Last update : January 2016 )

Payment

Bills of exchange are not commonly used inFinlandbecause, as inGermany, they signal the supplier's distrust of the buyer. A bill of exchange primarily substantiates a claim and constitutes a valid acknowledgment of debt.

Cheques, also little used in domestic and international transactions, but only constitute acknowledgement of debt. However, cheques that are uncovered at the time of issue can result in the issuers being liable to criminal penalties.

Moreover, as cheque collection takes particularly long in Finland (20 days for domestic cheques or cheques drawn in European and Mediterranean coastal countries, 70 days for cheques drawn outside Europe), that payment method is not recommended.

Conversely, SWIFT bank transfers are increasingly used to settle domestic and international commercial transactions. Finns are familiar with this efficient method of payment. When using this instrument, sellers are advised to provide full and accurate bank details to facilitate timely payment, while it should not be forgotten that the transfer payment order will ultimately depend on the buyer's good faith.

Debt collection

Out-of-court collection begins with a demand letter together with the invoice copies that refers to the debt with request to pay the outstanding principal increased by past-due interest stipulated in the contract.

In the absence of an interest rate clause in the agreement, interest automatically accrues from the due date of the unpaid invoice at a rate equal to the Central Bank of Finland's (Suomen Pankki) six-monthly rate, calculated by reference to the European Central Bank’s refinancing rate, plus seven percentage points (Interest Act Amendment, effective since 1st July 2002).

The Interest Act (Korkolaki) of 20 August 1982 already required debtors to pay up within contractually agreed timeframes or become liable to interest penalties.

Note, moreover, that according to contract law the ordinary limitation period, previously ten years, has been reduced to three years since 1 January 2004 and that it applies retroactively to contracts already in force.

For clear and uncontested claims, creditors may resort to the fast-track procedure resulting in an injunction to pay (suppea haastehakemus). This is a simple written procedure based on submission of whatever documents substantiate the claim (invoice, bill of exchange, acknowledgement of debt, etc.).

The court sets a time limit of about two weeks to permit the defendant to react, or to oppose the petition.

Considering undisputed claims, this fast track procedure can now be initiated by electronic means.

The presence of a lawyer, although commonplace, is not required for this type of action.

The court proceedings are conducted in Finnish or Swedish language (Language Act – Kielilaki 423/2003 – in force on 1st January 2004) and the courts, in their majority, consider that the language used is not likely to extend the duration of the proceedings.

The reform of civil procedure, enacted on 1st December 1993, requires plaintiffs to submit all supporting documents and evidence substantiating a claim before the debtor is asked to provide, in response, a written statement explaining his position.

During the preliminary hearing, the court bases its deliberations on the parties’ written submissions and supporting case documents. The court then convokes the litigants to hear their arguments and decide on the relevance of the evidence.

At this preliminary phase, it is possible with judge’s assistance, the dispute should be resolved by mediation between the litigants and their business relationship should be protected.

Where the dispute remains unresolved after this preliminary hearing, plenary proceedings are held before the court of first instance (Käräjäoikeus) comprising one to three presiding judges depending on the case’s complexity. During this hearing, the judge examines probative documentary evidence, hears the parties’ witnesses and the litigants state their final claims before the judge delivers the ruling very rapidly, generally within 14 days.

The losing party is liable for all or part of the legal costs incurred by the winning party.

The average time required for obtaining a writ of execution is about twelve months.

Commercial cases are generally heard by civil courts, although a Market Court (Markkinaoikeus) located in Helsinki, has been in operation as a single entity since the 1st March 2002, merger of the Competition Council and the former Market Court.

This court is competent to examine fraudulent business practices, denounce unfair trading, investigate corporate mergers, deliver prohibition orders against such practices and slap fines on offenders.